Being Fred Hassan

Sometimes you can spot a train wreck before it happens. At that point, the only thing that matters is who's driving that train.

Take Schering-Plough. In the 1990s, it was big and profitable, thanks to Claritin (loratadine), the allergy drug that almost single-handedly introduced the DTC era. At its peak in 2001, Claritin generated $3.1 billion in sales—almost a third of SP's total revenues.

Then the bubble burst. Faced with generic competition, SP's sales plummeted by more than 70 percent. SP's hepatitis franchise, with stiff competition and a product that eliminated demand by curing patients, dropped as well. Schering was leaking cash to the tune of $1 billion per year. What's more, the company was dealing with a multitude of regulatory issues, from FDA fines to a Securities and Exchange Commission investigation to charges of improper marketing.

Who you gonna call?

A Now-Promising Pipeline: The Organon Acquisition Fills a Phase III Gap for Schering-Plough

Well, how about a man who has already been CEO of two major pharmas, who's cowboyed the biggest turnarounds, and who practically created the modern pharma mega-merger? A guy who goes from company to company with an entourage of loyal and experienced execs, keeps a firm rein on the ad agencies, gets out and mingles with the district managers, and commands such respect that "Fred says" is an almost surefire way to win an argument in a company he leads.

In short, how about Fred Hassan?

Schering-Plough made the call, and Hassan took over in April 2003, dressed in his uniform of grey suit, white shirt, and red tie. He came armed with a five-step turnaround plan: stabilize the company; repair it; turn it around; build the base; and break out. Estimated time to completion: six to eight years.

But first, inform the employees. Within the first few days of arriving at SP, Fred did a road show of his plan. "In hindsight, that was the right thing to do," says Hassan. "It gave the whole company a road map to work with, a sense that there was somebody in charge even as they knew they were facing very difficult problems. At that stage, the best you can do is show that you are in charge and in control."

Long-Term Shareholder Value

Hassan immediately cut expenses. (Good-bye company jets, cafeteria, and half-day summer Fridays.) He froze salary increases and bonuses (even his own) and cut dividends by 68 percent, drawing gasps from investors, who had seen the dividend rise 17 times between 1986 and 2000. The stock tumbled.

Hassan, meanwhile, was rebuilding. Key to the plan was Vytorin, the cholesterol drug that combined SP's Zetia (ezetimibe) and Merck's Zocor (simvastatin). Hassan worked closely with R&D head Thomas Koestler on the evolving label. SP needed Vytorin to save the company, so everything had to be perfect. Hassan remembers the drug's launch meeting. "It was a very emotional gathering," he says. "It was not just a product launch, it was the re-launch of a company."

And sure enough, since the Vytorin launch, SP has
• had 11 straight quarters of double-digit growth
• is the fastest-growing company in its peer group
• is well positioned for future growth, especially with the acquisition of Organon BioSciences, a deal that is expected to close by the end of 2007.

The Schering-Plough story offers a fascinating tale of a turnaround. But it's also a story of how a leader can right the ship of the beleaguered modern-day pharmaceutical company. Given the challenges the industry faces, models of effective leadership are precious. Who can today's pharm execs learn from? To some extent or other, many leaders need to set themselves to the task of studying, emulating, and being a leader like Fred Hassan.

Which leads to the real question: How does he do it?

1 Start Early

Hassan was born in 1945, and he gives part of the credit for his career to lessons he learned while growing up in Pakistan. From his father, the country's first ambassador to India, he learned about war, diplomacy, and bridging cultures. His mother, a women's-rights advocate (no easy role in an Islamic country), taught him to take risks and to decide for himself what's right. In school, he loved geography and picked up English from Elvis.

Hassan left Pakistan to study chemical engineering at the University of London, then business at Harvard. When he graduated in 1972, he joined Sandoz Pharmaceuticals, working his way up the ladder with risky, difficult assignments: the reorganization of a marketing unit in Nebraska; then the turnaround of Sandoz's failing local operations in Pakistan.

"These jobs got me to see new things and tested me in different environments," says Hassan. "This is one of the industry's big challenges. By the time people are in the situation where they wish they had more exposure, it's hard to rotate out because they are very senior in a functional role."

By the age of 42, Hassan was CEO, a job he held until Sandoz merged with Ciba-Geigy in the $30 billion deal that created Novartis, the world's second-largest drug company. He moved to American Home Products and became president of its Wyeth-Ayerst Laboratories division. Before long, Hassan was elected to AHP's board of directors and eyed as heir apparent to CEO John Stafford.

But a much greater opportunity (read: challenge) awaited him. In 1997, he became CEO of the newly formed Pharmacia & Upjohn. The company had realized some savings from the merger, but it was failing to meet postmerger targets. To Hassan, job one was to untangle the mess created by the original merger plan, which gave operational autonomy to the company's business units in Kalamazoo, Stockholm, and Milan. To break down the cultural divides that split the company, Hassan picked five products for the entire team to unite behind. Then he moved P&U to New Jersey, where Hassan has lived ever since.

In 1999, Hassan engineered another mega-merger, this time with Monsanto, for $37 billion, gaining control of arthritis drug Celebrex. But that deal was dwarfed by what came next: the 2002 merger of Pharmacia and Pfizer, which created the world's largest drugmaker—by far.

The deal was pharma's biggest ever, but in terms of challenge, the high point was yet to come—on Hassan's second day on the job at Schering-Plough, he had to persuade an angry board of directors to buy into his action plan.

How did Hassan know what to do? "When you're in a turbulent situation, you have to take charge and work with imperfect information in a very limited period of time," he says. "That's where it really does help to have faced a similar pattern of problems in the past.

2 Make 'em Trust You

A pharma leader is responsible for engendering many forms of trust: from shareholders ("I believe in what you're doing for the company"); employees ("I like working here, and I believe I have a future"); and customers ("Your company's products can help me/my patient").